God Bless The Person Who Sues My Client
By
Brad Koteshwar
Copyright © 2012 by Brad Koteshwar
All rights are reserved. No part of this book may be used or reproduced in any manner whatsoever without written permission from the author.
Table of Contents
Prologue
Chapter 1: Bartel and Littleton
Chapter 2: F. Tabakanie
Chapter 3: Miami
Chapter 4: Money Starts to Roll in
Chapter 5: The Limassol Deal
Chapter 6: Limassol Cargo Arrives in Miami
Chapter 7: Pay a Mortgage
Chapter 8: The First Bite
Chapter 9: The Second Bite
This is a true story. The names and identities have been changed for the sake of anonymity.
Prologue
It was spring 2002. Ron Bartel had just gotten off the phone with Jim Callahan. It was not a good phone call. Ron Bartel had picked Jim Callahan from the pages of Martindale as an attorney of repute in Norfolk, Virginia. Martindale is a listing of lawyers who are considered to be of superior reputation. Bartel needed a business law expert and a civil attorney in Norfolk and he had picked Callahan after a day’s exhaustive work digging through Martindale’s listings and calling several lawyers in the Norfolk area.
Ron Bartel had spent the better half of the morning with Jim Callahan detailing the complete story behind the case against him. It was a complicated story. Once Bartel had finished with it, the words that came out from Callahan’s end of the phone were not encouraging as Callahan said, “This is a nightmare of a case, Ron. The story is too complicated for a jury to understand. They hear cigarettes imports and exotic places like Antwerp, Rotterdam and Limassol, Cyprus, and their eyes will glaze over. Many on the jury won’t even know where Cyprus is. And the plaintiff is a local man with a local accent and….” After listening to Callahan’s first couple of sentences, Bartel was not paying attention to Callahan as his heart sank. He was thinking that he going to be bankrupt and all the years of hard work had gone to dust. He would have to start all over again with nothing in his name. And he had a family to support. Bartel had taken all the right steps to avoid the traps of a severely litigious society and still he found himself in a soup.
Events that led up to this day had begun about four years prior.
Chapter 1: Bartel and Littleton
It was the summer of 1998. Ron Bartel, in mid-thirties, had been speaking with John Littleton on the phone almost daily for several months. Ron ran a successful import-export business he had founded ten years ago in Arizona. He operated this business with his wife, Marcia. Over the course of the ten years they were in business, Ron and Marcia had developed and built a rather large customer base around the world dealing in liquors, cigarettes, beer and wine. Their shipments were in full sea containers and they shipped quite a respectable number of sea containers monthly.
John Littleton was in his late-fifties and was the owner of a ship-supply company based out of Norfolk, Virginia. Littleton’s company, Caravan Shipping, supplied foods, beverages, sundries and assorted products to all the major vessels and ships calling the ports of Norfolk and Newport News. Caravan Shipping Company, Inc. was very successful for a small outfit. Littleton had started Caravan Shipping over thirty years ago and had built it up into a sales machine that saw annual sales exceeding $25 million.
Ron had kept his habit of making several cold calls each day in search of new leads. This was a habit he had learned from his wife, Marcia. She would tell him frequently, “Always spend some time looking for new leads.” As a result, Ron would spend an hour or two each day looking for new leads and making the calls to see if there were any new prospects out there.
On one such phone call, Ron Bartel spoke to John Littleton. Bartel had been calling all the ship supply companies in the United States and after many futile phone calls, he had stumbled upon Caravan Shipping and John Littleton. After several failed attempts to connect with Littleton directly, he was able to catch Littleton on the phone on a Friday afternoon. During that first phone conversation, Littleton had recognized the salesmanship and the work ethic that Bartel possessed. Littleton had seen profit potential in Bartel’s experience and customer base. Littleton had seen the enormous business prospects between Bartel’s client base and his own financial ability to finance shipments. Littleton thought to himself as he hung up the phone, “Now there is an opportunity that I can exploit.”
The call has been straightforward. Ron had called Littleton’s office. The key was to get past the gatekeeper, the secretary, who screens the calls from unwanted solicitations. Ron had introduced himself to Littleton’s secretary at the outset with, “Good afternoon, Evelyn.” He had learned her name and had managed to make himself reasonably familiar to Evelyn over the past few days when he had been unsuccessful in getting Littleton on the phone. All the previous calls had ended with Ron saying,” If Mr. Littleton is busy right now, I can call back, Evelyn. When would he be available to take my phone call?” Having spoken to Evelyn almost everyday for many days in a row, he had managed to become friendly with Evelyn.
Ron went on, “It is Friday afternoon, Evelyn. Do you think you can connect me to Mr. Littleton for a few minutes today? I have been trying to reach him for several days as you know. I am in the ship supply and trading business like you folks and I have some things that would interest Mr. Littleton. I had a note on my desk from our chat yesterday that I should try him now as you suggested.”
Evelyn had put Bartel right through to Littleton.
“Good afternoon, John. This is Ron Bartel with Silver International in Phoenix. How are you doing?”
“Just fine, thanks. How about yourself?”
“I am fine too, thank you for asking. I have been trying to reach you for days. I know you are a busy man. I will get straight to the point. We are in the import-export business and we have needs for several brands of liquors and beers that you carry. I know you have certain restrictions from the producers as to where you can sell their items.”
Most producers of well-known brands of products had their agents and distributors responsible for sales within certain specific territories. For example, Phillip Morris had agents for every part of the globe for Marlboro cigarettes and it would be very hard to keep a Phillip Morris agency if the agent sold Marlboro outside his designated sales areas. If Phillip Morris found out that an agent was selling Marlboro outside his assigned area, that agent would lose his supplies for Phillip Morris products. No agent would be happy to lose a Phillip Morris agency as it was an extremely lucrative business to be in. Littleton was allowed to sell Marlboro to only the vessels calling the ports of Norfolk and Newport News. Since he would be selling Marlboro cigarettes to folks on board vessels, they would be exempt from US taxes and the sales would fall under the duty-free umbrella. It was illegal for him to sell Marlboro to any outlet within the United States as selling within the United States would be duty-paid or tax-paid sales territory and that was out of bounds for Littleton. But, had he been a huge distributor for Phillip Morris, technically he would not be barred from selling Marlboro overseas as an export shipment. Littleton, however, did not have the volumes of Marlboro made available to him by Phillip Morris to have enough quantity to sell overseas. Moreover, the prices he could command selling Marlboro to vessels calling Norfolk and Newport News was much higher than what he would get if he shipped Marlboro cigarettes overseas. For Littleton, Marlboro was not a huge money maker. That w
as about change but Littleton had no clue what was coming in just a few short months.
Littleton was sharp. He felt from what little he heard from Ron Bartel on the phone that it would be a good idea for him to just listen. So he let Ron go on with his introduction.
“However, there are products and markets where there are huge arbitrage opportunities available.” Ron stopped for a moment to gauge Littleton’s reaction. There was silence which indicated to Ron Bartel that he had Littleton’s ear.
Ron continued, “For example, Taster’s Choice coffee maybe available to us in say Mexico at a 30-40% discount compared to the price of Taster’s Choice in the United States. That presents us an arbitrage opportunity. One could buy Taster’s Choice in Mexico, ship to the United States, and quickly realize a 30% profit. If you did one shipment a month, you are making over 300% in a year on your money.”
Littleton interrupted, “What about taxes?”
“I am giving you a hypothetical. Yes, taxes will eat up some of the profits. Despite the taxes, there are margins available that would result in some spectacular returns.”
Littleton persisted again, “If indeed life is so wonderful in the world of international trading, why aren’t more people involved? If it is so good, anyone with money should be in that game.”
Bartel brushed aside that comment and went on knowing that Littleton was all ears now and he had the time to slowly move forward. He was in no hurry. He wanted to be sure that Littleton would be open to take his phone calls from now on and that there was not going to be the need to knock on the gatekeeper’s door any more.
Bartel continued, “Arbitrage in this business is no different than in the financial markets. I mean currency traders try to take advantage of exchange rate discrepancies between New York, Tokyo, Hong Kong and London every day. The only difference is that currency discrepancies are so minute that it takes millions and millions of dollars to take advantage of the price differentials. In our business, it only takes tens of thousands to a few hundred thousand dollars and the price differentials are much more significant.”
“While 90 to 95% of our business is the standard run-of-the mill trading where we make 5 to 10% margins on our shipments, occasionally we do come across markets and products that offer some insane margins.”
“I contacted you because as a ship supply business, you have access to many products that we can always use. I was wondering if you would be open to sending us offers for some of the items that you can get that do not have serious restrictions to export.”
Littleton did not hesitate for a moment. He said he would be happy to send quotes for the products that he could get supplies for. The two men ended their conversation and promised to exchange information via faxes and emails. This was still the early days of common usage of emails for day-to-day business. Faxes were the norm but the days of the fax machine were numbered. Email was fast becoming the main means of written communication for businesses worldwide.
In the months that followed, prices and enquiries for price quotes went back and forth between the two men. As the summer months started to approach, demand for beer started to increase in the international market. Ron Bartel sent an email listing all his needs to fulfill his customers’ requirements for beer. Littleton had access to many domestic and international beers but he was limited in quantity on the domestic beers. He would get a supply of two thousand cases of Budweiser every month and even though he could have sold more to the vessels, Anhueser Busch never really increased his quota. During the course of the exchanges with Bartel, Littleton noticed that Ron had a large need for Heineken, a well-known Dutch beer. Heineken Breweries had approached Littleton some months back and wanted to increase their sales to the U.S. ship supply market. Littleton sent an email to Heineken’s duty-free and ship-supply division asking for prices and the kinds of volume that he could expect to receive. To Littleton’s amazement, Heineken didn’t have much of a restriction on the quantity they could supply. He added a 10% mark-up to his costs and sent a quote to Bartel. Littleton could easily supply three or four sea containers a month. Heineken Breweries in the Netherlands could ship sea-containers fully loaded with Heineken beer in cases to Norfolk. Littleton would receive the containers in the free zone in Norfolk without having to pay any U.S.A taxes or duties as the product was meant for on-board vessels sales, which was considered to be duty-free. Littleton would unload the cases of beer in the warehouse in the free zone, arrange new containers from the steam ship liners to come to the warehouse and re-load the cases of Heineken beer into these sea-containers. These containers would then go on board sea vessels for export shipment. As far as Heineken Breweries was concerned, they had no need to know to which final destination Littleton would ship the beer to. For the brewery it seemed that Littleton was selling the beer to the vessels that called on Norfolk and Newport News.
Bartel had been able to work with the price that Littleton quoted on his intended sale of Heineken. Having added the cost of stuffing the containers in Norfolk, loading the stuffed container on the sea vessel and the sea-freight cost to his customers in Hong Kong and other ports of China, the landed cost worked for Bartel and allowed him to make around 10% profit on his own investment on the shipment.
It was not a bad business for both Littleton and Bartel. Littleton had a better deal than Bartel as he asked for a full prepayment for the cargo in advance. This meant Littleton had no out of pocket investment as he was being paid in advance by Bartel. Bartel on the other had a financial commitment from his Chinese buyers in the form of a letter of credit. Letter of credit or L/C as it is called in the import-export industry was a bank instrument that allowed a shipper to collect payment for goods shipped from the buyer’s bank. But for a seller to collect the payment, he would have to submit shipping documents such as the bill of lading showing the cargo was shipped on board vessel along with a commercial invoice listing the price and the total value of the sale. Bartel would only get paid by his Chinese customers’ banks a couple weeks after the cargo was shipped from Norfolk. It would take a few days after the shipment left Norfolk to get the bill of lading from the steamship liner. Then Bartel had to attach his invoice to the bill of lading and send these documents to his own bank, Bank of America, in Phoenix. Bank of America would then send these documents and ask for payment from the Chinese buyer’s banks. In essence, Bartel had to pay Littleton a few weeks in advance and wait to realize his return on investment until he saw payment from the Chinese buyers’ banks.
Still Bartel was making a 10% return on his investment every 8-12 weeks. Compounded on a yearly basis, that was not a bad return. Littleton, on the other hand, was making his profit without any investment. He would collect the payment from Bartel, take his profit for himself and then send the payment to Heineken Breweries for his cost of the beer. For Littleton, this was a great business and he was realizing that Bartel could be a great source of profits as well as knowledge in this kind of trading.
Arbitrage is the act of profiting from price discrepancies. Floor traders on the commodity futures exchanges in New York and Chicago do it all the time. Speculators in the financial markets do it all the time. Arbitrage offers opportunity for profit in imperfect market conditions. Just as water finds it level, speculative investment chases prices until price finds its level. It doesn’t matter what the underlying commodity is, as long as price discrepancy exists, someone with deep pockets can profit.
It was no different in the parallel market. Parallel market is arbitrage market that exists outside the distribution channels established by the owners of the well-known branded merchandise. A similar arbitrage market exists in apparel where brands like Levi Strauss, Nike, etc. are traded in the international market. In cell phones and electronics, a market exists in Apple, Nokia, Sony PlayStation, Xbox 360 and other brands.
Bartel just happened to be good in his knowledge of the alcohol, spirits and cigarette parallel markets. In these commodities, he was extremely knowledgeable and had built a
solid customer base. After years of building a sound client base, he was now about move into an even more successful phase.
Chapter 2: F. Tabaknie N.V.
It was on one of his usual phone calls to his customer in Europe that Bartel first learned of the immense opportunity that lay right at his fingertips. On this day, Bartel was speaking to one of clients in the Netherlands about the cigarette business. The port of Rotterdam was a major hub for cigarette and liquor trading, especially for brand name spirits and cigarettes. All the major brands went through Rotterdam to keep confidentiality of where the products would eventually end up. Rotterdam and its supply of neutral bonded warehouses allowed receipt, storage and re-export of all the top brands of spirits and cigarettes.
There were more than a handful of such warehouses in the metro Rotterdam area. These were bonded warehouse in the free zone. The advantages that these warehouses enjoyed were plentiful. Container loads of spirits and cigarettes could arrive to the port of Rotterdam from any number of shipping points in the world and these goods could be unloaded into these warehouses without any duty-paid as long as they were re-exported. The cargo could be stored in these neutral bonded warehouses with complete and total security and with full ability to maintain proper temperature to store cigarettes and tobacco items. Tobacco and cigarettes are perishables and proper storage temperature is essential to maintain freshness.
Bartel had visited many of these warehouses in the Rotterdam area years ago. He knew most of the managers at the warehouses very well after years of trading and shipping to and from these warehouses. They all operated under pretty much the same protocol. In effect, these warehouses would act as clearing houses. If there was a buyer who was offered a stock of cargo that was stored at one of these warehouse, he could pay for the goods directly to the warehouse’s escrow account and have the title of the goods transferred to his name by the warehouse. The warehouse would pay the seller his invoiced amount and exchange the title simultaneously into the buyer’s name.
God Bless The Person Who Sues My Client - A True Story of Greed and Vengeance Page 1
